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Top Ten Economic Stories: December 19, 2008


1. Fed Slashes Key Interest Rate to Near Zero
On Tuesday, the Federal Reserve cut the rate that banks charge each other for overnight loans to its lowest on record: a range of zero to 0.25 percent. In effect, the central bank is cutting the cost of money, so banks will profit more and—hopefully—start lending again.

Investors can see this as a cause for hope: the Fed is determined to unstick credit by any means necessary to avoid Great Depression Take Two. This may mean that stocks have struck bottom and are on the rebound. (Standard and Poor has climbed 21.4 percent since November 20, and global markets have been jerkily rising.) People saving money might also consider moving cash into stocks, because banks will likely lower their yields on savings certificates even further.

Borrowers will also get a break because banks slashed their prime lending rate, and mortgage rates are dropping. Some homeowners will be able to refinance their mortgages. But millions won’t qualify. The government has to help homeowners in foreclosure to get at the root of the economic crisis.

2. He "Made Off" With a Mint
Investors worldwide are reeling from allegations that Wall Street money manager Bernard Madoff ran a $50 billion Ponzi scheme for more than a decade. Madoff was supposedly a hedge fund manager—meaning that he dealt only with clients who had more than $5 million to invest, and like a chef with a secret recipe, he didn’t tell his clients how he was investing their money. He didn’t have to, because hedge funds are largely unregulated. Thus Madoff could do anything he wanted with his clients’ money, and it seems as if he wasn’t investing at all. Instead, he engaged in a Ponzi scheme—paying his investors’ “dividends” with funds coming in from new investors who entrusted their cash to his care. The Securities and Exchange Commission failed to investigate Madoff, despite warnings dating back to 1999.

According to financial historian Niall Ferguson, money isn’t metal, it’s a matter of faith—a relationship between a lender and a borrower, in which the lender trusts the borrower to repay him. Madoff’s alleged fraud has rattled the trust of investors large and small. If Bernie Madoff, the epitome of a respectable Wall Street investment manager, can’t be trusted, anyone could be a fraud. Atheists and theists alike have chided our consumer culture for treating money like a deity. Perhaps we’re finally witnessing the death of God.

3. War Crimes
No wonder Illinois Governor Rod Blagojevich thought he could get away with selling a Senate seat, when our top officials have eavesdropped on US citizens without their knowledge and subjected detainees in US custody to torture. Last Monday, Vice President Cheney spoke openly and unapologetically about his crimes against humanity. In an interview with ABC News reporter Jonathan Karl, Cheney admitted that he had approved the CIA’s use of waterboarding, which has been recognized as a form of torture since the Spanish Inquisition. Cheney’s statements followed upon the Senate Armed Services Committee’s report that former Defense Secretary Donald Rumsfeld and other senior Bush administration officials authorized the use of abusive interrogation methods at Abu Ghraib, Guantánamo Bay, and secret CIA prisons.

The Bush administration has no intention of indicting Cheney or Rumsfeld, so it’s up to the Obama administration to restore the rule of law.

4. Hoover Forever
Last Friday, Senate Republicans shot down the $14 billion bailout for automakers—putting three million American jobs at risk. In a rare inspired moment, Vice President Cheney rushed to Capitol Hill and warned Senate Republicans that if they refused the rescue plan, “we will be known as the party of Herbert Hoover forever.” In the early 1930s, Hoover cut spending and balanced the budget—hurling the economy into further collapse. Right now, we’re at half the Great Depression’s highest unemployment rate. Roughly 10 million are jobless; another 10 million have stopped looking or are working fewer hours than they’d like. One in 10 US jobs depend on the auto industry.

Senate Republicans killed the bill because UAW president Ron Gettlefinger wouldn’t agree to concessions starting in 2009—even though the union has recently accepted deep cuts in wages and health benefits. (Rachel Maddow smartly notes that white-collar workers at financial institutions weren’t asked to take pay cuts or blamed for the failure of Lehman Brothers.) In terms of cash wages, Big Three autoworkers make on average several cents less than Toyota’s employees, though Detroit workers make more in benefits. Senate Republicans seem to be using this crisis as an opportunity for union-busting, but the union is already broken, and the Republican caucus couldn’t have picked a worse moment to make an ideological point.

5. Bush to the Rescue: Yikes!
On Wednesday Chrysler announced that it’s shutting down its North American factories for at least a month, while the Bush administration mulls over how to bail out the Big Three. The White House is thinking about using what remains of the first half of the $700 billion TARP package. (TARP stands for Troubled Asset Relief Program, though so far none of the money has been used to purchase “troubled assets.”)

Out of $350 billion, only a little more than $14 billion remains. That’s enough to tide over the automakers, but if another financial giant goes south before January 20, Treasury will have to ask Congress for the second half of the TARP. This will be difficult, since the Bush administration has already spent its TARP allowance irresponsibly and Congress is displeased.

6. Oil Prices Sinking

On Thursday, oil prices sunk below $40 a barrel—their lowest since 2004. Last July, they peaked at $145 a barrel. According to AAA, a gallon of gas in the US now averages $1.67, down from $4.11 five months ago.


7. Worldwide Lay-Offs
NPR reports that one of the world’s largest mining companies, British-Australian Rio Tinto, will lay off 14,000 workers. Sweden’s SKF, the world’s largest manufacturer of roll and ball bearings, will lay off 2,500 people employees from its US and European automotive businesses. The National Football League is cutting more than 10 percent of its staff, roughly 150 people.

8. London Calling All Socialists
Former British Prime Minister Tony Blair walked a centrist path between the rival Labor and Conservative Parties. Now Prime Minister Gordon Brown is turning back toward Labor’s socialist roots—fighting the financial crisis by borrowing, nationalizing banks, aiding industry, and taxing the rich. This strategy is dividing Parliament and Britain along more traditional left/right lines.

9. Poverty For All
Before this fall’s global economic meltdown, Argentina’s highly industrialized farm industry was flourishing with rising demands from Asia and Europe. Now the industry is hurting, and many farmers claim the government doesn’t support them. Earlier this year, thousands of farmers protested tax increases. Nestor Jose Forti, a farmer in tiny Alfonzo, told NPR, “The government says it wants to redistribute wealth… but what is being distributed is poverty.”

10. Carbon Cuts
The United Nations climate summit in Poznan, Poland marked the midway point in a two-year program striving for a Kyoto-style deal in which industrialized nations commit to stricter carbon cuts by 2020, and all countries agree to longer-term restrictions. BBC News reports that while western delegates left feeling encouraged, many groups fighting for environmental protection and poverty relief were disappointed that rich nations didn’t promise sufficient cuts, and poorer countries didn’t receive the funds they need to shield their people and economies from the impact of climate change.

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